US to give pressure on foreign exchange intervention…Export economy in ‘terror of exchange rate
Cho Eun Ae | eunae@ | 2018-04-16 11:13:46

South Korea has avoided designating the US currency manipulation station. However, the US government has begun to take on greater risks, demanding that Korea quickly disclose its foreign exchange market intervention. It is pointed out that the exchange rate will act as a negative factor in the Korean economy, which is highly dependent on exports.

The US Treasury Department has included Korea, China, Japan, Germany, Switzerland, and India in the exchange rate monitoring countries through the Exchange Rate Policy Report of major trading partners on April 13 (local time). The United States did not designate a target country for further analysis under the Exchange Rate Control Act or the Trade Promotion Act. If the US Treasury Department meets all three conditions, including a trade balance surplus of USD 20 billion, a current account surplus of more than 3% of GDP and a net foreign exchange rate of more than 2% of GDP, Designate the operating station.

South Korea has met only two conditions: the trade surplus of USD 20 billion (KRW 23 billion) and the current account surplus to GDP (5.1%). Market intervention was 0.6% of GDP.

As a result, Korea has avoided worrying the currency manipulation station, but it has become necessary to disclose the size of the exchange market intervention. The US Treasury Department said it would "strongly urge the Korean government to monitor the exchange rate policy of the Republic of Korea and disclose the exchange rate market intervention in a transparent and timely manner." It is the US Treasury`s decision that Korea`s foreign exchange authorities hedged the won by net buying of USD 9 billion. In particular, the Korea Foreign Exchange authorities pointed out that they were defending themselves through the USD 10 billion exchange market intervention from November last year to January this year.

The Korean government also took the lead in disclosing details of foreign exchange market intervention in response to the demand from the United States. However, it will deepen our search for ways to minimize the appreciation of the won. Kim Dong-yeon, deputy prime minister and planning and finance minister, attended a meeting of finance ministers of the world`s top 20 economies and the spring meeting of the International Monetary Fund (IMF) and the World Bank (WB) The meeting will be finalized.

Experts mention that although Korea avoided currency manipulation countries, the possibility of future intervention by the government in the exchange market is expected to shrink significantly due to the disclosure of exchange rate market intervention information. In the event of such a sharp fall in the exchange rate of the won against which the export market is adversely affected, the cards that the government can take are disappearing.

In the market, there is concern that the profitability of exporting companies may deteriorate due to the won depreciation. The Hyundai Economic Research Institute estimated that if the won-dollar exchange rate fell by 1%, total exports would fall 0.51%. By industry, exports of machinery (0.76 percent), IT (0.57 percent), and automobiles (0.4 percent) are expected to decline the most.

According to the report, "In the global export market, machinery and automobile industries, which are highly competitive with Japan, and the IT industry, which has a high proportion of exports, have high export sensitivity to exchange rate changes."

By Cho Eun Ae eunae@

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